Bears would say we broke down through the lower trend line of a (bearish) rising wedge and now we are re-testing the underside of the trend line on a low volume (low conviction), oversold, short-covering spike. The obligatory last kiss goodbye. Bulls would say we are about to retake that lower trendline, like the last two times, and then power to a new high. You know where I stand. The market is now back to being overbought (Mclellan Oscillator), so if that trend line is not taken back soon, someone is going to be changing their underwear. Bulls would counter that Wall Street is desperate to keep this shit show levitated through year end, bonus time. To which I will say that they have to deal with the four horsemen of 2012...
Back in the late 1990s the four horsemen of tech were: Microsoft, Cisco, Intel and Dell. These were the titans of tech in that era. Fast forward to today however, and Microsoft, Intel and Dell are like three boulders tied together sinking into oblivion. Add Hewlett Packard to the mix, since it's on the verge of oblivion as well. All four of these former market leaders are tied to the fate of the PC which is a totally commoditized platform under constant cannibalization by tablets and smartphones. Profit margins are shrinking and none of these companies has any viable strategy for replacing the lost revenue streams with new products. To make matters worse, it looks like Windows 8 is another dud for Microsoft.
No problem, right, because we have the new four horsemen of Tech: Apple, IBM, Google and Amazon. Unfortunately all four of these companies just missed their latest quarterly earnings estimates, so institutions need to pare back their holdings due to the uncertain earnings visibility. More importantly, the market as a whole just lost its key engine of growth, since the Nasdaq has been leading the rally since the 2009 low. It's the only index of the major indices to eclipse its 2007 high - which it did by a wide margin (see below). So without these growth leaders it's hard to believe that the market as a whole is going to get too far. In addition, within the Nasdaq, the leading sector of the past four years has been Biotech and that sector looks as though it has rolled over hard as well. The chart below shows a blow-off top in the Biotech ETF, followed by a five wave decline and three wave rally retracement. Again, unless by some miracle this sector can recover its former parabolic trend, then it's another leg of the stool kicked out.
Lastly, the most interesting chart is at the bottom. It's the total market as depicted by the Value Line Arithmetic Average. This chart to me shows clear 5 waves down 3 up, now at multiple degrees of trend from left to right.
Nasdaq:
Biotech:
Value Line Arithmetic Average: The Value Line index is market cap neutral so it best depicts the health of the overall market. As we see, there have been multiple breakout attempts since 2011. Look to the far right, to the most recent top. That's five stabs higher, each to a lower high - a clear downtrend. Bulls have fought for this same level dozens of times since early 2011 with no success, so this is where the bodies will likely be buried.
